Infosys Digital Radar 2019: Barriers and Accelerators for Digital Transformation in the Financial Services Industry

By Jeff Kavanaugh, Ashok Hegde, Rajesh Menon, Jeff Mosier June 2019   |   Report   |   31 min read   |   Email this article   |   Download Infosys Digital Radar 2019: Barriers and Accelerators for Digital Transformation in the Financial Services Industry

The digital transformation journey

Financial services companies have confronted challenges from all sides in the past two decades. Stricter regulatory requirements, changing customer demands, nontraditional competition and other factors are all forcing organizations to innovate.

While the industry overall has continuously invested in technology, only a small fraction has reached the level needed to compete against digitally-native companies or legacy organizations that have transformed for the new era.

Financial services companies must accelerate their pace of digital adoption and learn how to deliver real-time services and enhanced customer experience. Failure means losing customers and market leadership.

In early 2018, Infosys surveyed more than 1,000 senior management level executives working in large organizations around the world that had more than 5,000 employees and over $1 billion in annual revenue. That research included responses from more than 100 financial services industry executives.

Based on that survey, we produced a report — The New Champions of Digital Disruption: Incumbent Organizations — showing that incumbent organizations (as opposed to digital natives) fall into three clusters determined by their progress along the digital transformation journey:

Fewer watchers, more visionaries

Knowing that many organizations are rapidly intensifying their digital transformation efforts, Infosys conducted a new survey in November 2018 to gauge the pace of that change. This new survey of financial services firms shows a slightly smaller percentage of watchers and explorers and more visionaries, a sign of greater progress than in other industries. Overall, company executives told us that their organizations can advance from the watcher to the explorer level without herculean effort, but reaching the visionary level is significantly more difficult.

Financial services firms must prepare for the stress of devouring their own businesses, not to win in the marketplace but to simply survive. As Silicon Valley continues to attack their profit pools, banks must be prepared to disrupt their overall structures, operations and leadership.

Fewer watchers, more visionaries

Fewer watchers, more explorers

The need to be visionaries

Almost every incumbent financial services firm is being pushed by disruptors or peers to transform digitally. Stephen Lynch, CIO for consumer banking at a leading U.S. financial institution, believes that the pace and magnitude of the current technology-driven changes are unprecedented.

“Organizations have never had to transform in this manner before,” he said. “It’s very exciting — almost on par with the launch of the internet. It’s changing the economy so fast that we’re going to need all the global thought power we can get.”

Banks and financial services firms will survive only if they become digital transformation visionaries. Many will likely fall by the wayside. To stay relevant and avoid being blindsided by competitors, companies must find ways to transform their products, processes and business models using digitally-enabled approaches and technologies.

Navigating the transformation journey

Our most recent study takes a closer look at the transformation journey. We identified 22 key digital initiatives and then asked respondents where their companies stood on implementing each initiative:

  1. Not started (or in planning).
  2. Completed multiple proofs of concept.
  3. Completed pilot projects.
  4. Operating at scale.

We then developed the Digital Maturity Index and assigned each company an index score from 0 to 100 according to its progress on pursuing and implementing the 22 key initiatives.

Companies on the digital journey

Companies on the digital journey

Comparing clusters on their digital transformation journeys

As financial services companies advance through the digital transformation journey from watchers to explorers to visionaries, they operate more and more key digital initiatives at scale. The types of projects change throughout the journey and can be grouped into four categories:

  • Foundation initiatives must be implemented to modernize legacy systems.
  • Mainstay initiatives represent the core elements of digital transformation, including automation and artificial intelligence (AI).
  • Customer initiatives primarily impact the customer experience. They include omnichannel marketing and content personalization.
  • Forefront initiatives harness cutting-edge technologies, such as augmented reality (AR), drones and blockchain.

Visionaries stand out – cluster progress across 22 digital initiatives

Visionaries stand out - cluster progress across 22 digital initiatives

As shown in the previous figure, financial services visionaries are significantly more advanced than explorers in their implementation of virtually all initiatives, and watchers are far behind.

Watchers Explorers Visionaries
  • They typically operate at scale on only one or two digital initiatives, with perhaps a couple of others in the pilot testing phase.
  • None were operating at scale on the “internet of things,” AI, robotic process automation (RPA), content personalization or any of the forefront initiatives.
  • Fewer than half had moved beyond the planning stages on any forefront initiatives.
  • Among the foundation initiatives, cybersecurity shows the most progress in financial services as fraud increasingly moves online. Compliance and liability pressures are driving all companies in all clusters to invest here.
  • Watchers are investing in Agile and DevOps, with success in pilots. However, our research indicates difficulty in converting these small wins to larger initiative success.
  • Digital marketing is the sole customer initiative where financial services watchers have made significant progress. This is seen as a leading indicator of customer-centric initiatives to follow.
  • Much further along than watchers, financial services explorers have completed pilot projects for an average of seven key digital initiatives.
  • These companies have progressed past the planning stage on four-fifths of the initiatives. Yet they are operating at scale on only about six initiatives.
  • Cybersecurity, as the leading area in foundation initiatives, is also an area in which explorers are showing progress. Websense Security Labs has estimated that, on average, financial services companies suffer three times as many cyberattacks as do companies in other industries.
  • Earlier investments in business intelligence have provided a foundation for big data and analytics, which offers benefits for fraud detection as well as determining creditworthiness. Financial services explorers have made more progress here than on other mainstay initiatives.
  • Explorers have also made more progress on digital marketing than on other customer initiatives. This rules-based, revenue-oriented initiative tends to provide a clear business case in the financial services industry.
  • Far ahead of their peers, on average they are at scale for 12 initiatives and have completed pilots on seven further initiatives.
  • They have either completed pilots or achieved scale on nearly all key initiatives, with exceptions only on forefront projects such as virtual reality (VR) and AR, with 3% still pursuing each of these.
  • The overall consistency of progress across initiatives is remarkable, and shows that a comprehensive approach is required to attain leadership in financial services. It also implies possible synergy across initiatives, where success in one area such as big data may provide core capabilities for another initiative, such as internet of things — where some banks are already experimenting with expanded mobile payments and Bluetooth beacons in their branches.
  • Even in the forefront category, where progress is understandably less advanced than in the others, there is still consistency across initiatives. From our discussions with industry executives and experts, this highlights a “lean forward” mindset that embraces the understanding that today’s advanced technologies will become a vital part of tomorrow’s operating system.

Changing focus, making progress

Visionaries have many more initiatives operating at scale

Visionaries have many more initiatives operating at scale

As financial services companies advance along their digital transformation journeys, they tend to focus on different sorts of projects. Watchers are just trying to build a foundation for their digital transformation, so they are unlikely to have the bandwidth to launch mainstay, customer or forefront initiatives.

As companies reach the explorer stage, they turn their attention to a broader range of initiatives, including such mainstays as big data and analytics, enterprise cloud, and RPA, which helps with repetitive tasks such as opening accounts and following Know Your Customer regulations.

They can also spend time working on customer initiatives such as content personalization, digital product engineering and digital marketing. However, explorers must still invest time focusing on the basics, such as scaling the implementation of core foundational initiatives like legacy modernization, application programming interfaces (APIs) and business process management (BPM).

Financial services visionaries bring many initiatives to scale within foundation, mainstay and customer categories. They are also the only cluster making substantial progress on scaling forefront initiatives such as blockchain, originally created for cryptocurrencies but now gaining traction in the mainstream financial services industry. That technology is the basis for smart contracts, is used to facilitate international trade and can help verify online identities.